Rent A Captive Buisness

To the average consumer the term rent a captive is a confusing if not misleading term. To the professional familiar with the insurance industry it is one of the niche markets of coverage that quite a few individuals and businesses would like to be in. The concept can be confusing and the rules and laws concerning captives and rent a captives can seem rather opaque to the common person. But with a little research and definition of terms, the business model becomes clear and possibly an option for many businesses.

First we must define what a captive is. A captive is an insurance company founded with the purpose of underwriting risks emanating from the parent group or groups. Using a captive is a risk management tool employed by a business to form its own insurance company. The captive becomes a subsidiary company to the parent to pay its losses in an organized structure.

A rent a captive is a company that will provide the use of its captive to other companies for a certain fee, while insulating itself from losses within the same company. This technique is sometimes used for concerns that are too small to justify starting their own captives. This benefits the parent company in that they collect monies for the service but broadens the amount of risk they must expose themselves to. It also gives them more money to invest to expand its earning base.

One of the advantages to participating in a rent a captive is the flexibility the coverage affords. Should the market be down the captive can capitalize on low rates by reinsuring a larger portion of the risks. This allows the captive to build up its cash reserves. When the market goes up the captive can keep a bigger proportion of the risks while maintaining cover for the parent company. This will work even if commercial insurance is too expensive or unavailable.

Another benefit for a captive or rent a captive is the process by which claims are managed. When a third party is involved in making a claim the process can be drawn out and expensive. However, when the insurer is a captive, management handles the procedure, thereby reducing time to settle a claim and avoids the bureaucracy that is the hallmark of commercial insurers.

There are a number or reasons rent a captives and captives have been growing. First is the increasing premiums in most lines of coverage. The problems of getting coverage for certain risks in different parts of the world has also been a key concern. The fact of the matter is more companies will look to be covered under these kinds of umbrellas in order to protect themselves in an increasingly changing market.

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